China Food Solution Needs Better Farmer Rights: Cutting Research

According to Michael Spencer, chief economist for Asia at Deutsche Bank AG in Hong Kong, they need what their city counterparts already enjoy -- clearly defined property rights. That would enable “better” farmers to take over more holdings. Photographer: Ariana Lindquist/Bloomberg

Aug. 10 (Bloomberg) -- China’s ability to feed its
population may depend in part on a legal issue -- better
property rights for farmers.

The capacity of Chinese farmers to expand their holdings is
constrained by the fact that they only have usage rights and
can’t put it up as collateral to fund acquisitions, said Michael
Spencer, chief economist for Asia at Deutsche Bank AG in Hong
Kong. That in turn impedes improvements in agricultural
productivity.

According to Spencer, they need what their city
counterparts already enjoy -- clearly defined property rights.
That would enable “better” farmers to take over more holdings.

“Ultimately, land ownership is still held at the village
level,” he wrote in an Aug. 3 report. “The inability to
mortgage farmland makes it difficult for farmers to convert
their business from smallholder family farming to the industrial
farming necessary to feed 1.4 billion people on less than half
the current agricultural workforce.”

While farmers can currently rent other land, inability to
buy is a “significant barrier to the further increase in
agricultural productivity,” Spencer wrote. A change in the law
would also allow those “more suited to non-farm work” to sell
and migrate to urban centers.

A “massive injection of capital” is needed for
mechanization, and if farmers get secure rights, “they will be
the agents of this agricultural transformation,” he said.

Without these, rural land purchases may be dominated by
urban residents who can borrow against their assets to invest
“on the scale necessary to modernize Chinese farming,” Spencer
said. That will turn farmers “once again into workers on what
was once their own land.”

* * *

When Elvis Presley sang ‘Return to Sender’ 50 years ago, it
was a cry from the heart. For the National Bureau for Economic
Research it’s a way to study government efficiency.

The U.S., El Salvador, the Czech Republic, and Luxembourg
were the best performers in a study by the Cambridge,
Massachusetts-based institute that measured the speed at which
national postal services return incorrectly addressed mail.

The researchers sent two business letters to the five
largest cities in 159 countries. The addresses contained correct
postal codes though the addressee was a common name for that
country. The company name was both generic and fictitious, while
Nobel economics laureates or composers were used as street
names, such as Tobin Rd 1048 for a letter sent to Kenya.

Each envelope contained a business letter requesting an
urgent reply about a collaboration project, and the return
address was one of the researchers, Rafael La Porta at Dartmouth
College, New Hampshire. Under that, in bold letters, were the
words “PLEASE RETURN TO SENDER IF UNDELIVERABLE.”

The researchers received all letters back from 21
countries, including Canada, Germany, Uruguay and Algeria, and
none from 16 countries, mostly African, as well as Russia and
Cambodia. Only the U.S., El Salvador, the Czech Republic, and
Luxembourg sent the letter back within 90 days.

The researchers found differences in resources and
technology, such as having letter-sorting machines that can
detect incorrect street names, explain between 41 and 46 percent
of the variation in efficiency. Management practices also play a
role, since getting a low-level employee to process an
incorrectly addressed letter is a management issue.

“An important reason for poor government in developing
countries is the same low productivity that plagues the private
sector in these countries as well,” the report said. “Such low
productivity is related to inputs and technology, but also to
management. Not all bad government is caused by politics.”

* * *

The European Central Bank will focus attention for the rest
of this year on reviving bank lending amid signs that its
record-low interest rates aren’t feeding through to borrowers,
according to JPMorgan Chase & Co economist Greg Fuzesi.

The ECB’s lending survey for July shows the margin on
corporate loans has risen by 60 basis points since late 2011,
with small- and medium-sized companies hit hardest, Fuzesi said.
Interest charges on mortgages with a floating-rate or a cost
fixed for less than a year rose 70 basis points.

Rates on new corporate loans in Portugal and Greece have
“increased dramatically,” according to JPMorgan. While overall
borrowing costs for businesses in Italy, Spain and Ireland
stayed closer to those in Germany, rates on smaller loans --
which likely represent borrowing by smaller companies -- have
increased “sharply,” it said.

The findings suggest looser monetary policy may be needed,
perhaps by easing collateral requirements and offering more
Long-Term Repo Operations, according to Fuzesi.

“The tightening in bank lending standards is no longer
driven primarily by bank funding problems,” he wrote. “It is
increasingly driven by macroeconomic uncertainties, and also by
the cost of bank capital. This suggests that macroeconomic
stimulus, reduced policy uncertainty, and bank recapitalizations
are also needed.”

* * *

Australian sports fans looking for a scapegoat for the
dearth of medals at the London Olympics can possibly blame the
country’s currency.

After analyzing a century of sports data, economists at
Australia & New Zealand Banking Group Ltd. concluded that
Australian athletes have been more successful when their
currency is weak.

“Although not a gold medal winning analysis, the high
level of the Australia dollar appears to have a negative effect
on Australia’s Olympic performance,” chief economist Warren
Hogan and currency strategist Andrew Salter said in a July 30
report.

With three days of competition left, Australia has won just
six gold medals, which would be the worst performance since
1988. At the same time, its currency has gained 11 percent in
the past year, the best performer of the 10 developed-nation
currencies tracked by Bloomberg Correlation-Weighted Indexes.

The analysis also holds up in the light of Australia’s
best-ever gold medal performance in 2004. While the country’s
Olympians won 17 golds in Athens, the currency was about 32
percent weaker against the dollar than it is now.

For Hogan and Salter, traders and sports fans probably
shouldn’t take their analysis too far.

“Although we probably won’t make the podium, we remember
the dictum of the founder of the modern Olympic Games, Pierre de
Coubertin, who remarked ‘the important thing in life is not to
triumph but to take part,” they wrote.